Memory stocks have pulled back a lot over the summer. More swings are likely through September and October because of weak seasonal patterns. I still like the space and plan to keep buying on this pullback, mainly Micron (MU).
Micron (MU)
MU had been running up, hit 1255, and now sits at 967. It has a history of rallying into earnings, and the pre-earnings window starts next week. Past pre-earnings rallies move about 13% on average. I am long the stock and looking for a possible rally into September. It recently broke above the 50-day simple moving average (SMA) on the daily chart, which is a buy signal.
I like trading 50-day breakouts. Because it is such a widely watched level, it becomes a bit of a self-fulfilling move: a sector sits under that line, then a high-volume breakout follows. On MU I have butterfly spreads in the options market around the 1100 to 1200 strikes, targeting the September expiration. A butterfly is wide here, which cuts the cost of the long call a lot and gives a zone where the trade makes money. I do not place butterflies in the actual earnings series. I set them the week before earnings to catch the run into the report.
MU is also a relative strength long, meaning it can move up even when the broad market falls, so I keep names like this on even while hedging.
Hedging and market levels
I am reducing some longs and ready to hedge with the QQQs or the semiconductor ETF SMH if needed. Reasons to be careful: September seasonality often runs tough, volatility is rising, and put/call ratios are climbing. I plan to keep buying until I get a couple of daily closes below the 50-day moving average on the NASDAQ.
Both SMH and QQQ are still under the 50-day simple moving average on the daily chart. Once you get two closes below that level, it is usually hard to climb back above it without fresh volume or a catalyst. Right now the market is in a lull with few earnings reports. Nvidia reports next week, then September seasonality hits. I will hedge short term when SMH breaks below this zone and I see several tickers inside SMH breaking down at the same time. I keep buying long-term stocks and hunting relative strength names to trade up.
Can these names hit new highs?
Yes, I believe they will, though not likely in September. October, November, and the year-end rally are common strong stretches, so I position for that now. My method: look for consolidation, a squeeze on the daily and weekly charts. These are stocks that pulled back from highs, are tightening up, building pressure, and getting ready to move.
Seagate (STX) and SanDisk (SNDK)
I like Seagate (STX) most right now. It shows that consolidation on the daily chart and sits just under the 50-day simple line. It needs a news report or incoming volume, and when it breaks out I think it heads back toward its prior all-time high. That breakout usually happens before the earnings report.
STX is down 12% this week. Earnings moves of 10, 20, even 30% in a day have become common, so a 12% weekly drop stands out less than it used to. Year to date STX is up 10%. The pullback gives a better buy entry. These names typically rally before earnings and fall back after, because attention and catalysts fade once the report passes. I am not worried about the current drop. When volume returns, I expect a sharp move up.
